Congress enacted the Indian Ocean Tsunami Relief Act in January of 2005. The Act permits taxpayers who made donations in January 2005 to nonprofit organizations (including churches) aiding the victims of the Indian Ocean tsunami to claim those donations as deductions on their 2004 tax returns. Under prior law, any charitable contributions made in 2005 would have been deductible (for taxpayers who itemize) on their 2005 tax return, which could not be filed until after the close of the 2005 tax year. The new law allows taxpayers to claim those deductions and receive the benefit when they file their 2004 tax return.
Example. The value of the acceleration can be illustrated using a donation of $1,000 made in January 2005. Assuming a marginal tax rate of 35%, the tax deduction for that gift is $350 if claimed on the 2004 tax return. If that same donor waits and claims the contribution on the 2005 return, assuming an interest rate of 5%, the present value of that future tax deduction is $333. The tax savings from the accelerated deduction is modest (in this example the $17 savings is less than 2% of the value of the contribution).